In the World of Wild Venture. April 2023
A monthly guide to the world of venture investments news
The top story in the April Digest is global venture capital industry statistics for the first quarter of 2023. Also look for reports on fintech, climate tech, crypto, and gaming. In addition, we found some updates on developments in generative AI investing and synthetic data.
Top Stories
Toss a coin to your startup
According to Crunchbase, global venture capital investment in the first quarter of 2023 was $76 billion, down 53% from last year. All stages suffered, without exception, including the early stage. But that is only part of the puzzle.
At the end of 2022, investors worldwide had $580 billion of free capital. In other words, there is money, but there is no rush to invest it. This information correlates with our previous digest, where we discussed investor demand and the lack of supply of quality startup projects.
CB Insights sees similar trends in its own research.
Looks like nobody needs unicorns anymore
In Q1 2023, only 18 new unicorns were counted. The worst result since 2017. A whole era is fading away.
US Venture Capital Investment
The latest PitchBook report on the state of the US venture capital industry, based on Q1 2023 results. Investors are increasingly ignoring the late stages, preferring to save money. It's all due to the poor exit opportunities for mature companies.
Besides, according to the Q1 results, investors made exits for only $5.8 billion. That's less than 1% of the exits’ amount for all of 2021, so you can understand the scale of what's going on. In other words, very little. Investors are complaining about the bitter aftermath of previous years that they have to clean up. There are too many unicorns and companies with inflated valuations in the market that require a lot of capital and can't generate enough return for investors.
Also, U.S. venture capital funds raised $11.7 billion. There is a slowdown here, but overall the situation looks stable. It is too early to draw firm conclusions.
China Venture Capital Investment
According to the results of 2022, venture capital investments in China are going through bad times. Activity dropped to the level of 2017. Only $69.5 billion worth of deals were made. The reasons: severe quarantine, geopolitical tensions, and internal and external macroeconomic factors.
In addition to startups, funds are also struggling to raise capital. Last year, they raised only $44.5 billion, the lowest level in nine years.
Venture Capital Investment in Europe
The latest review of the European market for Q1, 2023, also from PitchBook. In general, the situation can be described in only two words – belt-tightening. According to the results, investment activity amounted to only €11.8 billion (-32% QoQ). In fact, the decline in activity began last year, and everyone was wondering whether it would continue in 2023. As we can see, the miracle did not happen.
Investment continues to suffer from inflation and tighter monetary policy, which limits the ability to invest. The authors note that not only startups are facing difficulties, but other businesses as well, so technology companies do not stand out here.
34.5% of all capital went to early-stage startups. Everything is stable here. However, there is an increase in spending in the later stages. This may be related to a high burn rate and the capital needs of portfolio companies.
The most popular industries: Software, Consumer Products & Services, and Commercial Products & Services. Separately, analysts point to the prospects for investment in energy technology.
The most active regions are the UK & Ireland, France & Benelux, and DACH.
Investors increasingly reluctant to invest in mature startups
The biggest revelation was Y Combinator's announcement in March, in which the incubator confirmed its refusal to double down on investments in late-stage portfolio companies. But PitchBook analysts also noticed this trend. In 2022, funds specializing in late-stage investments attracted $9.4 billion in the U.S. In the first quarter of this year, the figure is already laughable at just $400 million.
Industries. Part One
Investment in the climate tech industry at the lowest level in three years, reports PitchBook
In the first quarter of 2023, investments were down 36% compared to the same period last year. Startups are sounding the alarm and complaining about the difficulty of raising capital. This situation surprises analysts because the planet is increasingly threatened by climate disasters due to global warming. And if that is the case, there should be demand. But it seems that there is not.
Still, the authors are optimistic. One of the reasons is the US Low Inflation Act. Green technology startups are likely to receive subsidies. In addition, tax credits are planned for companies using carbon capture and storage technology.
Europe has a new king – Deep tech
Since 2018, the fintech industry has been the main cash cow of European venture capital. However, at the beginning of 2023, a new tendency emerged – Deep Tech, which has already taken first place in terms of the European investment amount. It is said that this is due to the recent bankruptcies of major banks (SVB, Credit Suisse). The turmoil in the financial sector is also affecting the fintech sub-sector.
Speaking of Fintech, the industry results for Q1 2023 are out
Whatever is happening in Europe, global investment in fintech is on the rise, according to CB Insights. Investors made 983 deals worth $15 billion (+55% QoQ). As many as 72% of deals were with early-stage startups, a new record. Products for banks and wealth tech suffered the most, with significant outflows. And most of the money went to payments, digital lending, insurance, and capital markets technology.
Also on the topic of fintech, we recommend Dealroom's review of the first quarter. According to their information, it is best to invest in B2B SaaS.
A similar review was published by PitchBook, where the authors focused on the B2B sector. However, we wrote about it in the last digest and did not find anything new here.
AI industry has money hidden in synthetic data, says PitchBook
One of the most prominent recent trends is AI, especially generative AI. However, this technology requires massive amounts of data for the machine to learn. The amount of real data is already limited. In the future, it is likely to run out completely. This will lead to the need for new sources of data – synthetic data.
According to Gartner, synthetic data will be the main source of training data for AI models by 2030. The analysts note that this market will be worth $1 billion by 2027. Moreover, this industry is virtually untouched by investors, and startups are rare here.
Many investors are looking at generative AI. But what areas are attracting the most capital?
CB Insights analyzed more than 210 deals in 2021 and 2022 to break down generative AI by sector. Investors put the most money into visual media ($822 million), generative interfaces ($586 million), social media and content for marketing ($317 million), and APIs ($249 million). See the chart below.
Industries. Part Two
The latest crypto review from a16z
You can read the full presentation at this link. Here are some conclusions:
Blockchain is increasing the number of active users and opportunities for engagement. In March, the number of active blockchain addresses reached an all-time high of 15 million.
DeFi and NFT activity appear to be growing again as new promising uses and applications emerge. In March alone, $100 million worth of transactions took place on decentralized exchanges.
The number of active developers in the crypto industry remains unchanged. Today, there are about 30 thousand of them in the world.
Blockchain is developing in new and innovative ways. For example, Layer 2.
New technologies that were virtually impossible before are becoming very real. For example, zero-knowledge systems.
The US is losing its leadership in web3.
Active progress on key indicators. Market volume, developer activity, and funding activity have grown steadily over the past decade.
Asia is still the best place for the gaming industry
Today, Asia is the largest market for video game enthusiasts. At the same time, as PitchBook reports, Asian startups are underperforming in terms of venture capital investment. In 2022, for example, only $2 billion of the global $11 billion went to local startups. So everyone wants to graze here, but not invest money.
Non-VC-related, but informative and even funny
Microsoft has published evidence that endless calls at work are bad for your health. Spend less time on the calls, colleagues.
A New York Post article about men and why they are dating less and less. The fact is, dating is starting to look more like a job interview.
Read how to change the other person's point of view in this Psychology Today article.
Another Psychology Today article, but this one is about how to stop being toxic.
Australian startup Vox claims to have created the world's first mammoth meatball. But the best part is yet to come. After the high-profile announcement, Belgian startup Paleo popped up and claimed to be first! The startups are threatening each other with lawsuits over the mammoth. Read more about this epic on Sifted. Eh, we live boring lives.
Graphene sensors allow robots to be controlled by the power of the mind, reports SciTechDaily.
Read about the future of smartphones at Wired.
You probably know the economic axiom that demand creates supply. But as a recent study shows, the price of a particular product is dictated by only one group of consumers. Read about it on Psyh.org
Did you know that the smell of a new car is actually very bad for you? If you buy a new car, don't breathe it.
Nautilus tells how the cleanest water on the planet is extracted.
In a physics experiment using lasers, scientists have managed to cut ‘slits in time’, reports BGR.
Useful Data, that can come in handy
Emerging companies in the biotech industry account for as much as 67% of new drug discoveries, according to Fierce Biotech. This is an unimaginable result that threatens large pharmaceutical corporations.
Real estate investments are becoming less attractive, reports Insider.
Information for startups. The 10 types of capital you can raise in the Sifted piece.
According to the Pew Research Center, 75% of Americans don't trust cryptocurrencies.
An article about angel investors on Sifted. In short, it recommends.
100 things you shouldn't do while building a SaaS company.
From the Editor
Our survey on the venture capital industry is still running. If you missed it, we'd appreciate your opinion and time. We've already managed to collect several dozen responses and the results look interesting.
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